Resurrect the Judicial System

Continued from “Overhaul the Judicial System”

Achilles’ Heel of Our Polity – Part IV

I mentioned in the last installment of the review of our judicial system what, Niall Ferguson, in his 2012 Reith Lectures described as the rule of law and its enemies. Indeed, every society has such enemies (open and hidden) working to undermine the rule of law if both the Government of the day and civil society relax their vigil. And in our society, rule of law has enemies aplenty, reinforced in our case, moreover, with the absence of those pre-conditions that sustain rule of law.

Before touching upon a commonly neglected enemy, let me mention an invisible enemy of rule of law i.e., the interplay of vested interests that successfully ensure the undoing of laws of a previous regime that they deem injurious to their vested interests. Let me take a contemporary example of a law rescinded during Obama administration – a law passed to salvage the American economy during the New Deal period of Roosevelt.

I’m referring to the Glass–Steagall Act of 1933 named after Congressional sponsors, Senator Carter Glass (D) of Virginia, and Representative Henry B. Steagall (D) of Alabama. The term Glass–Steagall Act, however, is commonly used to refer to four provisions of the Banking Act of 1933 that limited securities activities of commercial bank and, more importantly, the affiliations between commercial banks and securities firms. The purpose of the Glass-Steagall Act was to separate the activities of commercial and investment banks. Deregulation in the two decades after the election of Ronald Reagan led to the “disappearance” of thrift from American society and to excessive risk-taking by banks. That this deregulation had no macroeconomic benefits is another story. In fact, productivity declined. However the American banking interests wanted the Act repealed. Even President Bill Clinton publicly declared “the Glass–Steagall law is no longer appropriate.”

However, many commentators realized later that the repeal of the affiliation restrictions of the Glass–Steagall Act was an important cause of the late-2000s financial crisis. Some critics of that repeal argue it permitted Wall Street investment banking firms to gamble with their depositors' money that was held in affiliated commercial banks.

Any repeal of the legislation of a previous era must be solely guided by larger public interests both in short, middle and long term interests, and not by the pressure that a powerful interest group can bring to bear upon the Government of the day’s legislative agenda.

Bad Laws

Niall Ferguson, in particular, mentioned in his above lectures, another enemy of rule of law. He called it bad laws. He specifically named the famous (or infamous) Dodd-Frank Act of Obama’s first term as President. Ferguson thinks it is “a near-perfect example of excessive complexity in legislation.” Named after its Democratic sponsors in Congress, Senator Chris Dodd and Representative Barney Frank, the law aimed at preventing a repeat of the 2008 financial crisis.

The 2000-page Act included sweeping new rules for banks, hedge funds and complex financial transactions called derivatives. The act also created a new Consumer Financial Protection Bureau to protect retail users of banking products and a new Financial Stability Oversight Council to watch for looming threats to the financial system. US regulators are now in the process of churning out hundreds of new rules that cover everything from limiting proprietary trading (taking bets with a bank’s own money rather than for clients) to regulating swaps dealers.

President Barack Obama, who signed the act into law, said: “The American people will never again be asked to foot the bill for Wall Street’s mistakes,” but many in the financial services sector say the law and accompanying regulations are confusing, expensive and in some cases unworkable. The act requires that regulators create 243 new rules, conduct 67 studies - to see if the rules are necessary – and issue 22 periodic reports. It eliminates one regulator and creates two new ones. Many commentators believe that the law really doesn’t serve the purpose it was designed to because of its complexities.

Our Bad Laws

In our case there’s no dearth whatsoever of such “bad laws”.

Some were put on the statute book by the British rulers and still merrily continue. In the last sixty years after Independence we didn’t have the time to scrap them. How busy indeed have been our legislators, shouting slogans inside the House and seeking adjournments!

Some of the laws passed after 1947 certainly qualify to be included in the category of bad – may I add very bad – laws. I cited in the last installment the case of the Income Tax Act passed in 1961 – a law that has so far been amended some 4000 times.

The worst attribute of the Act is that while it taxes income earned by an assessee, it exempts one source of income, namely, agricultural income while taxing others. This provision was incorporated almost a century ago by the British partly to buy political loyalty of the agriculturists and partly, because of traditional uncertainties of agriculture, neither of which is valid any more.

The Emergency era Foreign Exchange Regulation Act is another example. Mrs. Gandhi really had the intention of using it selectively, if at all. When George Fernandes implemented it during the short-lived Janata Government he was severely criticized for driving Coca Cola and IBM out of the country.

Over-complicated regulation can indeed be the disease of which it purports to be the cure. Just as the planners of the old Soviet system could never hope to direct a modern economy in all its complexity, for reasons long ago explained by the British economist Friedrich Hayek and his Hungarian counterpart, Janos Kornai, so the regulators of the post-crisis world are doomed to fail in their efforts to make the global financial system crisis-free. They can never know enough to manage such a complex system. They will only ever learn from the last crisis how to make the next one. Hence, the continuing surfeit of bad laws.
Another conspicuous example of bad laws in our society is the set of our industrial laws, which number over fifty. Some of the oldest are the Trade Unions Act (1926), Boilers Act (1923), Children (Pledging of Labour) Act (1933), Payment of Wages Act (1936), Employers Liability Act (1938), Weekly Holidays Act (1942), Minimum Wages Act (1948), Coal Mines Provident Fund and Miscellaneous Provisions Act, (1948) and Dock Workers (Regulation of Employment) Act (1948). The joke I used to hear working as a management consultant was that any industrial establishment can, on any day, be closed down by any one of the forty one Government functionaries. I used to ask: “How do you, then, continue to work?” “That’s simple, and you know it. We keep them happy.”

May I, in particular, mention our hopelessly outdated Trade Unions Act. One of its provisions provides that any seven workers can form a union. So an industrial unit employing 200 workers can have over two dozen unions most of them unrecognized and hence, all the more irresponsible in their so-called demands. Frequent work interruptions severely affect productivity. Yet the national trade unions won’t let the Government drastically recast the law.

Additionally, since many of these laws were formulated during the era of price control and Nehruvian socialism, elaborate provisions for bureaucratic controls are built into them. Attention has to be paid to minimize such controls to meet the requirements of the new free market regime.

Urgently Needed Reforms

The Constitution of India after Independence turned the orientation of the legal system originally introduced for perpetuation of colonial and imperial interests in India, firmly in the direction of social welfare. Can this new orientation be achieved without a thorough overhaul of the judicial system as it obtains today? As it is, the system is on the verge of collapse. At the end of 2012, there were 59,816 cases pending in the Supreme Court. The number of cases awaiting adjudication in the country’s 21 high courts is about 17,000, and in subordinate courts, lakhs of them. And this mind-boggling number excludes – repeat excludes – lakhs of cases pending in consumer courts and tribunals.

There is an urgent need for a judicial reform involving a thorough review of all existing laws and to make the judicial system more responsive to the needs of society. Despite recommendations of the Judicial Commissions appointed by the Government, the reforms have not taken place. Obviously, the courts themselves have a vested interest in keeping them pending forever. It suits the judges and lawyers and, most of all, politicians facing trial.

The Union Government must initiate a time-bound task of sprucing up the Indian legal system by rewriting and streamlining the 3,000-odd existing laws operating in the country. It is possible and must be given in the agenda of renewal to save the polity. Indeed the task is formidable. But it can be accomplished by two commissions working simultaneously: one revising civil laws and the others working on the updating of criminal law to replace the existing corpus. Both the commissions should include retired judges of the Supreme Court and High Courts and submit their recommendations within a given time frame. The task should include recommendation to scrap outdated laws and updating existing laws in the light of court judgments and contemporary needs.

Attention also has to be paid to a better compliance machinery. For instance, powers of implementing innumerable laws are vested in the district magistrate at present. If district magistrates actually started monitoring the implementation of all these laws, they would have little or no time for carrying out their regular duties.

The need for a revised legal framework has been felt since economic reforms began in 1991. The Government had been following a piecemeal approach by updating certain critical laws like the Companies Act and the Income Tax Act, as and when the need arose.
There hasn’t been, so far, a serious effort to separate the chaff from the grain. Many a law need not remain on the statute book which was passed, for example, a century ago to cope with the then obtaining situation. As a matter of fact, any law enacted must be for a fixed duration after which it lapses automatically or, if necessary, re-enacted.

The present judicial system is severely overstrained and on the verge of collapse, and with it the polity itself unless it is drastically reviewed and reformed.